Banking and PSU Funds: Invest in Debt Mutual Funds

What is a Banking and PSU Funds ?

A banking and PSU fund is a debt mutual fund which invests a majority of its portfolio in debt instruments offered by banks and public-sector undertakings.

Advantages of Banking and PSU Funds

Good returns

These funds have the potential to generate attractive returns on your investment which helps in growing your corpus with added stability.

Liquidity

With the portfolio allocated in the bank and PSU debt instruments, you can enjoy a good portfolio with quality securities.

Capital appreciation

Since the fund invests in high-rated bonds, the credit risk is minimal. Bonds carrying a high credit rating have proven track record of repayment and do not tend to default.

Lower Risk Profile

Benefit from investments in debt instruments of scheduled banks and public sector undertakings, which generally carry a lower risk due to government backing.

Banking and PSU Funds Returns Calculator

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Understanding Banking and PSU Fund

Table of Contents

What are Banking and PSU Funds?What are the features of Banking and PSU Funds?Things to keep in mind when investing in Banking and PSU Funds What are the types of risks that Banking and PSU Funds face?What is the tax implication of Banking and PSU Funds?What are the payout options?

What are Banking and PSU Funds?

A type of open-ended debt mutual fund, a banking and PSU fund, invests at least 80% of its portfolio in debt instruments issued by banks and public-sector undertakings. These instruments carry a good rating and are backed by good issuers, making the fund attractive for investors.

What are the features of Banking and PSU Funds?

Offers stable returns on investment with minimal credit risk
Good portfolio with quality investment in banking and PSU securities
There’s no capping on the maximum investment amount
You can get better returns compared to fixed deposits
The funds aim to grow the portfolio through interest earned and also through the rise in the price of the underlying securities

Things to keep in mind when investing in Banking and PSU Funds

Check the expense ratio of such schemes. A high ratio eats into the fund’s returns and should be avoided

Compare Banking and PSU Funds on their returns. A fund with the highest return is better

Check the portfolio for the credit rating of the underlying securities

What are the types of risks that Banking and PSU Funds face?

Credit risk

Risk of default on the debt instrument
Interest rate risk

Risk of rising interest rates, which reduces the value of debt instruments
Inflation risk

Risk of inflation reducing the returns from the debt fund
Liquidity risk

Risk of not being able to trade in debt instruments

What is the tax implication of Banking and PSU Funds?

Returns earned are taxed at your income tax slab rates
Dividends earned, if any, are taxed at your income tax slab rate

What are the payout options?

Dividend option

Earn dividends on your investment at regular intervals
Growth option

Accumulate the returns over the investment tenure and get a lump sum amount on redemption

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FAQs On Banking and PSU Fund

PSU funds are debt mutual funds that lend only to PSUs (Public Sector Undertakings).They are one of the popular low-risk fund categories.

Banking and PSU Funds invest at least 80% of the total corpus in instruments issued by banks and public sector companies.

You can invest in Banking and PSU Funds through the Aditya Birla Capital website. Please visit the mutual fund section for steps involved.

No, Banking and PSU Funds do not come with a lock-in period.

As the instruments invested in have central government backing, Banking and PSU Funds are significantly less risky as compared to quite a few other debt funds.